PERSPECTIVES

By Ruth Lea, Economic Adviser to the Arbuthnot Banking Group

Ruth Lea The UK as a place to do Economic Adviser Arbuthnot Banking Group business: still very highly [email protected] 07800 608 674 regarded internationally

4th November 2019

Introduction

Earlier this year we undertook a “health check” on the UK’s perceived status as an international economy. Specifically, we included the World Bank’s Doing Business 2019 report, the WEF’s 2018 Global Competitiveness Report and the March 2019 update of the Global Financial Centres Index.1 Since then, all these reports have been updated and, given the ongoing uncertainties over Brexit, it is opportune to revisit these analyses. In broad terms, the UK seems to be holding its own. There was modest promotion in the “doing business” rating, a modest demotion in the WEF’s competitiveness ranking and London remains the second ranked international financial centre after New York. Whilst this is no cause for complacency, the UK maintains its position as a very highly regarded internationally place to do business.

The World Bank sees UK as the 8th best place to do business, up a notch…

The World Bank’s “Doing Business” reports are among their flagship publications. Their latest report, Doing Business 2020, was their 17th. It measured regulations across 190 economies in 12 business regulatory areas in order to assess the business environment in each economy.2 Ten of these indicators were used to estimate an ease of doing business score for the latest report (calculated over the 12 months ending April 2019). The study looked at rules affecting a business from inception through operation to wind-down: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.

Chart 1 (and annex table 1) shows the World Bank’s rankings for selected countries. The top ten were: New Zealand, Singapore, Hong Kong, Denmark, South Korea, the US, Georgia, the UK, Norway and Sweden. The UK’s solid 8th position, up from 9th in 2019, was comfortably ahead of the EU27’s “big 4” economies: Germany (22nd), Spain (30th), France (32nd) and Italy (58th). Greece was ranked 79th.

1

The World Bank concluded their analysis with an upbeat call to further improvement in the regulatory environment for business: “…the results of Doing Business 2020 demonstrate that in almost every economy in the world, there is some scope to streamline or expedite rules to make it easier to do business, allow entrepreneurship to flourish, and make it possible for economic activity to reach its full potential”.

Chart 1 World Bank, “ease of doing business index”, top 10 (2020 ranking), 2017-2020

18 16 16

14 12 12 10 10 10 9 9 9 9 8 8 8 8 8 7 7 7 7 6 6 6 6 6 5 5 5 5 4 4 4 4 4 3 3 3 3 2 2 2 2 2 1 1 1 1

0 New Singapore Hong Kong Denmark South US Georgia UK Norway Sweden Zealand SAR Korea

2017 20182 2019 2020

Sources: (i) World Bank, “Doing Business 2020, sustaining the reforms”, October 2019; (ii) Wikipedia “Ease of doing business index”. See annex table 1.

…but the UK slips a place to be WEF’s 9th most competitive economy…

The World Economic Forum’s (WEF) Global Competitiveness Report has been criticised for its cultural bias and subjectivity.3-4 But it does provide a way of ranking countries internationally in terms of their likely economic success and prosperity.

The report’s indicators are largely derived from the results of the WEF’s extensive Executive Opinion Survey, though additional statistical information is used where this is considered relevant. The survey questions ask for responses on a scale of 1 (the worst outcome) to 7 (the best outcome). The answers are then weighted for each country to give an overall score (Global Competitiveness Index (GCI)), with the top countries in the resulting league table achieving the highest scores and the bottom countries achieving the lowest.

The 2019 Global Competitiveness Report mapped the competitiveness landscape of 141 economies through 103 indicators organized into 12 themes (“pillars”). Each indicator, using a scale from 0 to 100, shows how close an economy is to the ideal state or “frontier” of competitiveness. The 12 “pillars”, covering broad socio-economic elements, are: institutions, infrastructure, ICT adoption, macroeconomic stability, health, skills, product market, labour market, the financial system, market size, business dynamism and innovation capability. These

2 pillars are grouped into four basic sub-groups, which are regarded as the basic drivers of competitiveness: the enabling environment, human capital, markets, and the innovation ecosystem.

Table 1 shows these four sub-groups, with their constituent pillars, alongside the UK’s rankings (out of the 141 countries surveyed). Within the “enabling environment”, the UK scored very highly with regards to macroeconomic stability (1st) and highly with institutions (11th) and infrastructure (11th), but the ICT adoption rating was a relatively low-placed 31st. The WEF noted that in the UK “…ICT adoption, while increasing, remains low by OECD standards: the country ranks 31st globally and only 16th in Europe.” Within “human capital”, the UK was ranked highly for skills (11th), though less highly for health (33rd).

Concerning the third sub-group, “markets”, the UK performed well. And, finally, within the “innovation ecosystem”, the UK scored highly for both “business dynamism” and “innovation capability”. There was no reference to Brexit.

Table 1 WEF Global Competitiveness Index (GCI): the 4 sub-groups and the 12 pillars, UK rankings (2019)

Overall Sub-groups Pillars Selected sub- GCI (9th) categories A. Enabling 1st pillar: Institutions (11th) environment 2nd pillar: Infrastructure (11th) 3rd pillar: ICT (information and communications technology) adoption (31st) 4th pillar: Macroeconomic stability (1st) B. Human 5th pillar: Health (33rd) capital 6th pillar: Skills (11th) Digital skills of the population (29th) C. Markets 7th pillar: Product market (21st) 8th pillar: Labour market (9th) Hiring & firing practice (11th) 9th pillar: Financial system (7th) 10th pillar: Market size (8th) D. Innovation 11th pillar: Business dynamism Cost of starting a ecosystem (9th) business (1st), Growth of innovative companies (19th) 12th pillar: Innovation capability Research & (8th) Development (6th)

Source: WEF, “Global Competitiveness Report 2019”, August 2019. UK rankings are in brackets (out of 141 countries).

3 All in all, the UK’s international performance remained creditable, though its overall position slipped a place to be rated the 9th most competitive economy in 2019, behind Sweden (see chart 2 and annex table 2). The main country findings were:  Singapore edged the US out of first place, whilst Hong Kong jumped to third.  An improved Netherlands surpassed Switzerland and Germany to be the most competitive European economy.  Japan, Sweden, the UK and Denmark were the remaining countries in the WEF’s top 10.  Within Europe, Finland, France and Norway were also rated highly, whilst other high ranking non-European economies included Taiwan, Korea, Canada, Australia and New Zealand.  Of the BRICs, China (PRC) was ranked 28th, Russia 43rd, India 68th and Brazil 71st.  Specifically concerning the Eurozone, there remains the persistent competitiveness gap between the northern countries (the Netherlands, Germany and Finland) and many of the southern countries, though Spain, Italy and Greece have significantly improved their rankings in recent years (see annex table 1).

Chart 2 WEF Global competitiveness rankings, top 10 (2019 ranking), 2016-17, 2017-18, 2018, 2019

14 1212 12 1010 10 9 9 9 9 8 8 8 8 8 7 7 7 7 6 6 6 6 6 5 5 5 5 4 4 4 4 4 3 3 3 3 2 2 2 2 2 1 1 1 1

0

2016-17 2017-18 2018 2019

Source: WEF, “Global Competitiveness Report 2019”, August 2019, and previous 3 reports, see annex table 2.

…whilst London is still the second highest ranked financial centre

The Global Financial Centres Index (GFCI), compiled by Financial Centre Futures (FCF), has been running since March 2007. It provides evaluations of competitiveness and rankings for important financial centres. There were 104 centres in the main index in September 2019, the latest report.5 Two sets of data are used in compiling the GFCI:  Instrumental factors, which comprise objective information from a wide number of sources on, for example, ICT connectivity and business-friendly regulation. The factors used in the GFCI model are grouped into five broad areas of competitiveness: business environment, human capital, infrastructure, financial sector development, and reputation. (Annex table 3a provides

4 further information on the areas of competitiveness, whilst annex table 3b shows the top performing financial centres by area of competitiveness.)  Financial centre assessments from an online questionnaire. The GFCI does not include any respondents’ assessments on the respondents own centres. Thus a London-based respondent’s assessment of London would be excluded.

The latest (September 2019) GFCI, showed that New York retained the top position, in a year “noted for geopolitical uncertainty and the US-China trade wars” (chart 3a). 6 Even though London retained 2nd position, its rating had dropped 14 points on Brexit uncertainty (see annex table 4). These top two centres were then followed by Hong Kong, Singapore, Shanghai and Tokyo. Beijing gained two places to be 7th, followed by Dubai and Shenzhen (both improving) and Sydney. Chart 3b shows the top 10 centres located in Europe, along with their global rankings. London comfortably retained its number one position, followed by Zurich and Frankfurt. A much improved Paris, with ratings increasing 29 points, retained 4th position.

The GFCI survey asked a specific question about the impact of Brexit. It concluded that the leading UK financial centres (London and Edinburgh), were the centres respondents believed would experience the largest negative effects, although these (negative) effects are seen to improve a little in the longer-term. Respondents considered that New York, Hong Kong, and Singapore would benefit significantly from Brexit. In Europe, Frankfurt was considered likely to benefit most, followed by Paris, Luxembourg, Zurich, and Dublin.

Chart 3a Global Financial Centres Index, top 10 centres (Sep 2019 ranking), Sep 2018, Mar 2019, Sep 2019

16 15 14 14 12 12 12 11 10 10 9 9 8 8 8 7 7 6 6 6 6 5 5 5 4 4 4 4 3 3 3 2 2 2 2 1 1 1

0 New York London Hong Kong Singapore Shanghai Tokyo Beijing Dubai Shenzhen Sydney

Sep-18 Mar-19 Sep-19

5 Chart 3b Global Financial Centres Index, top 10 European centres, with their global rankings (Sep 2019)

50 46 43 45 41 41 40 37 373838 35 35 35 33 30 29 30 27 2728 25 26 23 25 21 20 17 14 15 15 9 1010 10 8 5 2 2 2 0

Sep-18 Mar-19 Sep-19

Sources: Financial Centre Futures, “The Global Financial Centres Index (GFCI)”, 24 (Sep 2018), 25 (Mar 2019), 26 (Sep 2019). See also annex table 4.

Central Bank update: the Fed cuts interest rates again…

As widely expected, the Fed reduced the target range for the federal funds rate by 0.25% to 1.50%-1.75% at its October meeting.7-8 The cut was the third 0.25% cut since July. The FOMC explained that the policy easing was justified “…in the light of the implications of global developments for the economic outlook as well as muted inflation pressures.” Moreover, the FOMC “…will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate”. However, Fed Chair Jerome Powell implied the bank would hold off on further cuts, saying “…we feel that policy is well-positioned” at a press conference at the end of the Fed’s two-day meeting.9

The Fed’s decision was announced on the same day as the release of the GDP data for 2019Q3. The economy grew by a better-than-expected 1.9% (annualised), compared with the expected 1.6%. However, this quarterly increase followed 2.0% in 2019Q2 and 3.1% in 2019Q1, confirming that the economy has slowed this year.10 Nevertheless, the labour market remains robust. Non- farm payrolls rose a better-than-expected 128,000 in October, despite the impact of strike action at General Motors.11 And, even though the unemployment rate edged up to 3.6% from 3.5% in September, the rate is still very low. September’s rate was the lowest since 1969. There were also upward revisions to the employment data for August and September.

…no policy change at the ECB…

ECB President Mario Draghi presided over his final policy-setting meeting on 24 October.12 The Governing Council left the interest rate on the main refinancing operations and the interest rates

6 on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively. The ECB confirmed that net purchases would be restarted under the asset purchase programme (APP) at a monthly pace of €20bn as from 1 November, as agreed in September.13 Draghi has been replaced by Christine Lagarde, who assumed her duties on 1 November 2019 for a term of office of eight years.14 Draghi was President of the ECB from 1 November 2011 to 31 October 2019.

Separately, Eurostat released its “flash” estimate of GDP for 2019Q3, which showed a marginally better-than-expected 0.2% (QOQ) increase, following a 0.2% rise in 2019Q2.15 Comprehensive country data are not yet available, although it has already been announced that French GDP expanded by a greater-than-expected 0.3% in the quarter.16 Germany’s GDP data are due on 14 November, and they are expected to be poor. The Bundesbank recently warned that the economy may have shrunk again in 2019Q3, after a 0.1% (QOQ) decline in 2019Q2.17 The Bundesbank noted in its October monthly report that the economy was being dragged down by a weak manufacturing sector and weak exports.

…and the Bank of England meets next week

The policy decision of the next meeting of the Monetary Policy Committee (MPC) will be announced on 7 November 2019, accompanied by the Bank’s November Inflation Report. No change in policy is expected.

UK data update; disappointing public finances…

There have been only two significant official releases in the past fortnight (see annex 5 for the latest data tracker).18-19

The first related to September’s public finances, which would have been the last set of public finance data ahead of the planned Budget (for 6 November, since cancelled).20 The data were initially released containing a statistical error, which has subsequently been corrected. This note refers to the corrected figures.21

The public sector net borrowing (PSNB-ex, excluding public sector banks) deficit was £9.2bn in September 2019, compared with £8.8bn in September 2018, a deterioration £0.4bn. This was the first September year-on-year borrowing increase for five years. Central government receipts in September 2019 increased by £4.0bn (or 6.9%) to £61.2bn, compared with September 2018, while total central government expenditure increased by £4.3bn (or 6.8%) to £67.6bn. Of this £67.6bn, £60.8bn related to the cost of the “day-to-day” activities of the public sector (the current expenditure), while £6.8bn was capital spending (or net investment), such as on infrastructure.

Borrowing in the current financial year-to-date (April-September 2019, FY2019) was £39.0bn, compared with £33.2bn in the same period last year (April-September 2018, FY2018), a deterioration of £5.9bn (rounding errors). This was the first April-September borrowing increase for five years.

In March 2019, the OBR forecast that total borrowing would be £29.3bn for the full year FY2019 compared with the pre-revised total for FY2018 of £23.6bn, some £5.7bn higher. (Note, however, that the total PSNB for FY2018 was revised up by £17.8bn last month reflecting methodological changes.) Given that the deterioration for the first six months of FY2019 has been £5.9bn, it looks

7 almost certain that the PSNB for FY2019 will exceed FY2018 by more than the OBR expected in March, even after allowing for the methodological revisions (chart 4). New OBR forecasts will accompany the next Budget, whenever it is planned to be.

Public Sector Net Debt (excluding public sector banks, PSND ex) was £1,790.9bn at the end of September 2019 (80.3% of GDP), compared with £1,763.6bn (81.5% of GDP) at end-September 2018. The debt/GDP ratio is falling.

Chart 4 Public Sector Net Borrowing (PSNB), FY2019-FY2018 (£bn)

7 5.7 5.9 6 5 4 3 2 1 0 -1 Full year Apr-Sep (recorded) Oct-Mar (implied)

FY2019-FY2018 -0.2

Sources: (i) OBR, Economic and fiscal outlook, March 2019; (ii) ONS, “Public sector finances: July 2019”, 21 August 2019, see annex table 6 for the calculations.

… whilst consumer credit growth and net mortgage borrowing little changed

The second release was the Bank’s Money and Credit release for September.22 There were few surprises. The highlights were:  The annual growth of consumer credit was 6.0% in September, compared with August’s 6.1% (revised up).  Net mortgage borrowing by households was £3.8bn in September, little changed from August (£3.9bn). September’s increase was “close to the average of the past three years.” The annual growth rate was unchanged at 3.2%, also much in line with growth rates of the past three years.  The number of mortgage approvals for house purchase (which give an indication of future mortgage lending) was also little changed at 65,900 in September (65,700 in August, and a 6- month average of 65,600). The Bank commented “…they remained within the narrow range seen over the past three years”.  Finally, net finance raised by UK private non-financial corporations (PNFCs) was relatively strong in September, rising to £9.7bn. This primarily reflected £6.5bn net issuance of bonds and £2.9bn of borrowing from banks (monetary financial institutions (MFIs)).

Political update: General Election on 12 December…

A General Election has been called for 12 December. The Early Parliamentary General Election Act 2019 received Royal Assent on 31 October, following agreement by both Houses on the text of the Bill. The Commons approved the legislation on 29 October (438/20, a majority of 418).23 Parliament will be dissolved on 6 November 2019.

8 The Commons vote of 29 October followed the Government’s failure to get an early election under the Fixed Term Parliaments Act on 28 October. The Government failed to achieve the required two-thirds of MPs (434) voting in favour. The voting was 299/70 for the motion, Labour having abstained.24

Concerning the state of parties (table 2), recent events to note include:  10 of the 21 “rebels” of the Conservative party, who had the whip removed on 3 September, had the whip restored on 29 October 2019.25  The other 11 “rebels” were Guto Bebb, Ken Clarke, David Gauke, Justine Greening, Dominic Grieve, Sam Gyimah, Philip Hammond, Sir Oliver Letwin, Anne Milton, Antoinette Sandbach and Rory Stewart. Sam Gyimah joined the LibDems on 14 September and Antoinette Sandbach joined the LibDems on 31 October, leaving the other nine as independents.  Amber Rudd, who resigned the whip on 7 September, also did not have the whip restored and remains an independent.

Table 2 House of Commons, state of the parties

Components Number of MPs Voting: Conservatives (excluding Speaker, Deputy Speaker, Dover 297 MP) Labour (excluding two Deputy Speakers) 242 SNP 35 Independent (including Dover MP) 24 (excluding Sandbach) LibDems 20 (including Sandbach) DUP 10 Independent Group for Change 5 Plaid Cymru 4 Green 1 Sub-total 338

Non-voting: Speaker (John Bercow until 31 October) & 3 Deputy Speakers 4 Sinn Fein 7 Vacant (Bassetlaw, was John Mann) 1 Sub-total 12

Grand total 650

Sources: (i) “Current State of the Parties”, www.parliament.uk; (ii) BBC, “Boris Johnson readmits 10 Brexit rebels to Tory party”, 29 October 2019.

Given the impending General Election and the dissolution of Parliament, the Government’s attempts to get the revised “deal” through Parliament have been put on ice. For the record, however:  The Government introduced the European Union (Withdrawal Agreement) Bill on 21 October 2019.26 The purpose of the Bill is to turn the Withdrawal Agreement, the draft international treaty agreed by the UK Government and the EU on 17 October, into UK law and to give the

9 Government permission to ratify it.  The Commons voted to approve the European Union (Withdrawal Agreement) Bill at second reading, 329/299 (majority of 30) on 22 October 2019.27  The Commons rejected the Government’s three-day programme (timetable) for completing the stages (Committee, Report, third reading) of the Bill by Thursday 24 October 2019.28 The vote was 322/308 (a majority against the programme of 14).

There are two other UK political events to note:  The Commons approved the Queen’s Speech, given on 14 October, by 310 votes to 294 on 24 October.29-30  And, as already noted, the Treasury announced the Budget, planned for 6 November, had been cancelled.

…and Brexit has been postponed again

Brexit has been postponed and the 31 October “deadline” has been missed.

EU leaders agreed in principle on 27 October, confirming on 28 October, to extend Brexit until 31 January 2020, effectively cancelling 31 October 2019 as Brexit Day. EU Council President Donald Tusk noted the extension was a “flextension” - meaning the UK could leave before the deadline. The UK could leave on the first day of the month of December or January if the Withdrawal Agreement was ratified in both Westminster and the European Parliament in the meantime. The Prime Minister agreed to the extension on 28 October.31-32

Note on the European Commission

The new European Commission, under President-elect Ursula von der Leyen, was due to become operative on 1 November. But a series of political setbacks have meant that a new administration will not be starting for, at least, another month.33 Von der Leyen originally announced her team of Commissioners in September.34 However, three (from France, Hungary and Romania) out of her 27 recommended appointees were rejected by the European Parliament on 16 October.

10 References

1. Ruth Lea, “The UK economy in a global context: an important second tier economy”, Arbuthnot Banking Group, 8 July 2019, discussed the World Bank’s “Doing Business 2019” report, the WEF’s 2018 report and the March 2019 GFCI update. 2. World Bank, “Doing Business 2020 - Sustaining the pace of reforms”, 24 October 2019. 3. WEF, “Global Competitiveness Report 2019”, 8 August 2019. 4. WEF, “Global Competitiveness Report 2019: How to end a lost decade of productivity growth”, 8 August 2019. 5. Financial Centre Futures, “Global Financial Centres Index 26 (GFCI26)”, 19 September 2019. In addition, there are ten associate centres awaiting potential inclusion in the main index. 6. CityAM, “London calling: London holds on to number two slot in financial centres ranking”, 19 September 2019. 7. Federal Reserve, “Federal Reserve issues FOMC statement”, 30 October 2019. 8. Federal funds rate: rate banks charge each other for overnight loans of federal funds (reserves held by banks at the Fed), set by the market. 9. BBC, “Federal Reserve cuts rates again amid trade and growth fears”, 30 October 2019. 10. CityAM, “US economic growth beats expectations but Fed still set to cut rates”, 30 October 2019. 11. BBC, “US jobs growth beats forecasts despite GM strike impact”, 1 November 2019. 12. ECB, “Monetary policy decisions”, 24 October 2019. 13. Ruth Lea, “July’s better-than-expected GDP data suggest economy not slipping into recession”, Arbuthnot Banking Group, 23 September 2019, discussed the ECB’s September package. 14. ECB, “New President of the European Central Bank”, 1 November 2019. 15. Eurostat, “GDP up by 0.2% in the euro area and by 0.3% in the EU28”, 31 October 2019. 16. Reuters, “French growth beats expectations in third quarter after Macron splashes out”, 30 October 2019. 17. CityAM, “German central bank warns economy may have shrunk in third quarter”, 21 October 2019. 18. Ruth Lea, “The IMF downgrades global growth again for 2019, slowest pace since the financial crisis”, Arbuthnot Banking Group, 20 October 2019, for the last data tracker. 19. Note, however, that the ONS released both the “UK National Accounts 2019, Blue Book” and the “UK Balance of Payments 2019, Pink Book” on 31 October 2019. 20. Reuters, “UK’s Javid scraps November 6 budget plan over Brexit delay, election call”, 24 October 2019. 21. ONS, “Public sector finances, UK: September 2019”, 22 October 2019, as corrected on 29 October. 22. Bank of England, “Money and Credit: September 2019”, 29 October 2019. 23. BBC, “UK set for 12 December general election after MPs’ vote”, 29 October 2019. 24. BBC, “MPs reject 12 December election plan”, 28 October 2019. 25. BBC, “Boris Johnson readmits 10 Brexit rebels to Tory party”, 29 October 2019. The 10 were Richard Benyon, Steve Brine, Alistair Burt, Greg Clark, Stephen Hammond, Richard Harrington, Margot James, Caroline Nokes, Sir Nicholas Soames, Ed Vaizey. 26. BBC, “What is the Withdrawal Agreement Bill?”, 22 October 2019. 27. BBC, “Brexit deal: How did my MP vote on the Withdrawal Agreement Bill?”, 22 October 2019. 28. BBC, “Brexit bill ‘in limbo’ as MPs reject timetable”, 22 October 2019. 29. BBC, “MPs approve Queen’s Speech by 16 votes”, 24 October 2019. 30. Ruth Lea, “The IMF downgrades global growth again for 2019, slowest pace since the financial crisis”, Arbuthnot Banking Group, 21 October 2019, discussed the 2019 Queen’s Speech.

11 31. BBC, “Brexit: Johnson agrees to Brexit extension - but urges election”, 28 October 2019. 32. House of Commons Library, “What does the latest Brexit delay mean for the UK and EU?”, 31 October 2019. 33. EurActiv, “New EU Commission delayed for at least a month”, 17 October 2019. 34. Ruth Lea, “July’s better-than-expected GDP data suggest economy not slipping into recession”, Arbuthnot Banking Group, 23 September 2019, for the prospective Commissioners.

Annex

Table 1 World Bank: Doing Business, rankings (by 2020 ranking), selected countries

2017 ranking 2018 ranking 2019 ranking 2020 (change (change on (change on on 2019) 2017) 2018) “Very easy” New Zealand 1 1 1 1 Singapore 2 2 2 2 Hong Kong 4 5 (-1) 4 (+1) 3 (+1) Denmark* 3 3 3 4 (-1) South Korea 5 4 (+1) 5 (-1) 5 US 8 6 (+2) 8 (-2) 6 (+2) Georgia 16 9 (+7) 6 (+3) 7 (-1) UK 7 7 9 (-2) 8 (+1) Norway 6 8 (-2) 7 (+1) 9 (-2) Sweden* 9 10 (-1) 12 (-2) 10 (+2) Australia 15 14 (+1) 18 (-4) 14 (+4) Taiwan 11 15 (-4) 13 (+2) 15 (-2) Finland* 13 13 17 (-4) 20 (-3) Germany* 17 20 (-3) 24 (+4) 22 (+2) Canada 22 18 (+4) 22 (+4) 23 (-1) Ireland* 18 17 (+1) 23 (+6) 24 (-1) Russia 40 35 (+5) 31 (+4) 28 (+3) Japan 34 34 39 (+5) 29 (+10) Spain* 32 28 (+4) 30 (+2) 30 China 78 78 46 (+32) 31 (+15) France* 29 31 (-2) 32 (-1) 32 Switzerland 31 33 (-2) 38 (+5) 36 (-2) “Easy” Italy* 50 46 (+4) 51 (-5) 58 (-7) India 130 100 (+30) 77 (+23) 63 (+14) Greece* 61 67 (-6) 72 (-5) 79 (-7) “Medium” Brazil 123 125 (-2) 109 (+16) 124 (-15)

Sources: (i) World Bank, “Doing Business 2020, sustaining the reforms”, October 2019; (ii) Wikipedia “Ease of doing business index”. EU27 countries marked with an asterisk.

12 Table 2 WEF Global Competitiveness Index for top 17 (ranked 2019) & other selected countries

2016-2017 2017-18 2018 2019 Economy Rank (138 Rank (137 Rank (140 Rank (141 countries) countries) countries) countries) Singapore 2 3 (-1) 2 (+1) 1 (+1) USA 3 2 (+1) 1 (+1) 2 (-1) Hong Kong SAR 9 6 (+3) 7 (-1) 3 (+4) Netherlands 4 4 6 (-2) 4 (+2) Switzerland 1 1 4 (-3) 5 (-1) Japan 8 9 (-1) 5 (+4) 6 (-1) Germany 5 5 3 (+2) 7 (-4) Sweden 6 7 (-1) 9 (-2) 8 (+1) UK 7 8 (-1) 8 9 (-1) Denmark 12 12 10 (+2) 10 Finland 10 10 11 (-1) 11 Taiwan, China 14 15 (-1) 13 (+2) 12 (+1) Korea Republic 26 26 15 (+11) 13 (+2) Canada 15 14 (+1) 12 (+2) 14 (-2) France 21 22 (-1) 17 (+5) 15 (+2) Australia 22 21 (+1) 14 (+7) 16 (-2) Norway 11 11 16 (-5) 17 (-1)

New Zealand 13 13 18 (-5) 19 (-1) Austria 19 18 (+1) 22 (-4) 21 (+1) Belgium 17 20 (-3) 21 (-1) 22 (-1) Spain 32 34 (-2) 26 (+8) 23 (+3) Ireland 23 24 (-1) 23 (+1) 24 (-1)

China 28 27 (+1) 28 (-1) 28 Italy 44 44 31 (+13) 30 (+1) Russia 43 38 (+5) 43 (-5) 43 India 39 40 (-1) 48 (-8) 68 (-20) Greece 86 87 (-1) 57 (+30) 59 (-2) Brazil 81 80 (+1) 72 (+8) 71 (-1)

Sources: WEF, “Global Competitiveness Report 2019”, August 2019 and 3 previous annual reports. Changed ranking on previous report in brackets.

13 Table 3a September 2019 (GFCI26), areas of competitiveness

Business Human capital Infrastructure Financial sector Reputational environment development Political stability & Availability of Built Depth & City brand & appeal rule of law skilled infrastructure breadth of personnel industry clusters Institutional & Flexible labour ICT Availability of Level of innovation regulatory market infrastructure capital environment Macroeconomic Education & Transport Market liquidity Attractiveness & environment development infrastructure cultural diversity Tax & cost Quality of life Sustainable Economic Comparative competitiveness development output positioning with other centres

Table 3b September 2019 (GFCI26), areas of competitiveness, top performing centres

Overall ranking Areas of competitiveness (GFCI) Business Human Infrastructure Financial Reputational environment capital sector & general development 1 New York New York New York New York New York New York 2 London London Hong Kong Hong Kong London Hong Kong 3 Hong Hong Kong London London Hong Kong London Kong 4 Singapore Singapore Singapore Singapore Singapore Singapore 5 Shanghai Chicago Shanghai Shanghai Frankfurt Shanghai 6 Tokyo Zurich Tokyo Tokyo Tokyo San Francisco 7 Beijing Shanghai San Beijing Shanghai Chicago Francisco 8 Dubai Frankfurt Chicago San Francisco San Francisco Tokyo 9 Shenzhen Toronto Los Angeles Zurich Zurich Boston 10 Sydney Geneva Dubai Sydney Paris Shanghai

Source: Financial Centre Futures, “Global Financial Centres Index 26 (GFCI26)”, 19 September 2019.

14 Table 4 Global Financial Centres Index, ratings of financial centres (Sep 2018-Sep 2019), rankings in brackets: top 20 (Sep 2019) & selected others

GFCI24 GFCI25 GFCI26 Sep 2018 Mar 2019 Sep 2019 Top 20 European top 10 [EU] New York 788 (1) 794 (1) 790 (1) London 786 (2) 787 (2) 773 (2) 1 [1] Hong Kong 783 (3) 783 (3) 771 (3) Singapore 769 (4) 772 (4) 762 (4) Shanghai 766 (5) 770 (5) 761 (5) Tokyo 746 (6) 756 (6) 757 (6) Beijing 733 (8) 738 (9) 748 (7) Dubai 722 (15) 733 (12) 740 (8) Shenzhen 726 (12) 730 (14) 739 (9) Sydney 734 (7) 736 (11) 738 (10) Toronto 728 (11) 744 (7) 737 (11) San Francisco 724 (14) 727 (16) 736 (12) Los Angeles 721 (16) 724 (17) 735 (13) Zurich 732 (9) 739 (8) 734 (14) 2 Frankfurt 730 (10) 737 (10) 733 (15) 3 [2] Chicago 717 (17) 717 (20) 732 (16) Paris 691 (23) 699 (27) 728 (17) 4 [3] Boston 725 (13) 732 (13) 727 (18) Melbourne 699 (20) 729 (15) 720 (19) Montreal 690 (16) 722 (18) 716 (20)

Selected others: Guangzhou 708 (19) 708 (24) 711 (23) Vancouver 709 (18) 721 (19) 710 (24) Lux’bourg 694 (21) 691 (30) 708 (25) 5 [4] Geneva 685 (27) 698 (28) 706 (26) 6 Osaka 693 (22) 690 (31) 705 (27) Washington DC 655 (36) 689 (32) 702 (28) Edinburgh 634 (43) 674 (35) 701 (29) 7 [5] Seoul 668 (33) 668 (36) 677 (36) Amsterdam 657 (35) 646 (41) 675 (37) 8 [6] Dublin 652 (37) 658 (38) 674 (38) 9 [7] Monaco 629 (46) 686 (33) 669 (41) 10 Madrid 619 (53) 667 (37) 661 (44)

Sources: Financial Centre Futures, Global Financial Centres Index reports, numbers 24-26.

15 Table 5 UK economic data tracker

Date Release Source Quarter, Outcome year 13 Sep Index of labour costs per hour ONS 2019Q2 +3.4% (YOY) (2019Q2) 30 Sep Current Account, Balance of ONS 2019Q2 Deficit: £25.2bn (4.6% of GDP), Payments (2019Q2): £33.1bn (6.0% of GDP, 2019Q1) 30 Sep Trade (goods & services) ONS 2019Q2 Deficit: £11.4bn (2019Q2), £22.7bn balance: (2019Q1) 30 Sep  Visible trade balance ONS 2019Q2 Deficit: £34.1bn (2019Q2), £48.1bn (2019Q1) 30 Sep  Services balance ONS 2019Q2 Surplus: £22.7bn (2019Q2), £25.3bn (2019Q1) 30 Sep Primary income balance ONS 2019Q2 Deficit: £7.1bn (2019Q2), £3.4bn (2019Q1) 30 Sep Secondary income balance ONS 2019Q2 Deficit: £6.7bn (2019Q2), £6.9bn (2019Q1) 30 Sep GDP, quarterly, 2019Q2, ONS 2019Q2 GDP: -0.2% (QOQ), 1.3% (YOY) revised 30 Sep GDP: industrial breakdown ONS 2019Q2 Production: -1.8% (QOQ); (2019Q2) Manufacturing output: -2.8% (QOQ); Construction: -1.2% (QOQ); Services: 0.1% (QOQ) 30 Sep GDP: expenditure breakdown ONS 2019Q2 Household consumption: 0.4% (2019Q2) (QOQ); GGFC: 1.1% (QOQ); GFCF: - 0.9% (QOQ), within which business investment -0.4% (QOQ). Inventories: -£0.7bn (2019Q2), +£5.5bn (2019Q1). Net contribution of net trade (KP): +£12.8bn. Exports -6.6% (QOQ), imports -13.0% (QOQ) 1 Oct Manufacturing PMI (Sep) Markit- 2019Q3 Index: 48.3 (Sep), 47.4 (Aug) CIPS 2 Oct Construction PMI (Sep) Markit- 2019Q3 Index: 43.3 (Sep), 45.0 (Aug) CIPS 3 Oct Services PMI (Sep) Markit- 2019Q3 Index: 49.5 (Sep), 50.6 (Aug) CIPS 8 Oct Productivity (output per hour) ONS 2019Q2 -0.2% (QOQ), -0.5% (YOY) (2019Q2) 8 Oct Productivity (output per job) ONS 2019Q2 -0.6% (QOQ), flat (YOY) (2019Q2) 10 Oct GDP, monthly (Aug) ONS 2019Q3 GDP: -0.1% (MOM), 1.1% (YOY) 10 Oct GDP: industrial breakdown ONS 2019Q3 Production: -0.6% (MOM); (Aug) Manufacturing output: -0.7% (MOM); Construction: 0.2% (MOM); Services: flat (MOM)

16 10 Oct GDP, monthly (3 months to ONS 2019Q3 GDP: 0.3% (QOQ), 1.2% (YOY) Aug) 10 Oct GDP: industrial breakdown (3 ONS 2019Q3 Production: -0.4% (QOQ); months Aug) Manufacturing output: -1.1% (QOQ); Construction: 0.1% (QOQ); Services: 0.4% (QOQ) 10 Oct NIESR GDP tracker NIESR 2019Q3 GDP change: -0.2% (QOQ) in 2019Q2, +0.5% (QOQ) in 2019Q3. 10 Oct UK trade in goods & services (3 ONS 2019Q3 Trade deficit: £4.6bn (3 mths to months to Aug) Aug), £17.6bn (3 mths to May), narrowed by £13.0bn (QOQ). 10 Oct UK trade in goods (3 months to ONS 2019Q3 Goods deficit: £28.4bn (3 mths to Aug) Aug), £40.8bn (3 mths to May), narrowed by £12.4bn (QOQ). 10 Oct UK trade in services (3 months ONS 2019Q3 Services surplus: £23.8bn (3 mths to to Aug) Aug), £23.3bn (3 mths to May), rose £0.5bn. 15 Oct Employment (3 months to Aug) ONS 2019Q3 -56k (QOQ), +282k (YOY) 15 Oct Unemployment (3 months to ONS 2019Q3 +22k (QOQ), -49k (YOY) Aug) 15 Oct Unemployment rate (3 months ONS 2019Q3 3.9%; 4.0% (3 months to Aug 2018) to Aug) 15 Oct Vacancies (3 months to Sep) ONS 2019Q3 Total vacancies: 813k, -11k (QOQ), - 33k (YOY) 15 Oct Earnings (3 months to Aug), ONS 2019Q3 3.8% (YOY, total pay, including nominal bonuses), 3.8% (YOY, regular pay, excluding bonuses) 15 Oct Earnings (3 months to Aug), ONS 2019Q3 1.9% (YOY, total pay, including real bonuses), 2.0% (YOY, regular pay, excluding bonuses) 16 Oct CPIH (Sep) ONS 2019Q3 YOY inflation: 1.7% (Sep), 1.7% (Aug) 16 Oct CPI (Sep) ONS 2019Q3 YOY inflation: 1.7% (Sep), 1.7% (Aug) 16 Oct PPI (output) (Sep) ONS 2019Q3 YOY inflation: 1.2% (Sep), 1.7% (Aug) 16 Oct PPI (input) (Sep) ONS 2019Q3 YOY inflation: -2.8% (Sep), -0.9% (Aug) 16 Oct Crude oil prices (Sep) ONS 2019Q3 +0.6% (MOM), -14.6% (YOY) 16 Oct Sterling effective exchange rate ONS 2019Q3 +2.4% (MOM), -2.0% (YOY) index (ERI) (Sep) 16 Oct House prices (Aug, official) ONS 2019Q3 YOY growth: 1.3% (Aug), 0.8% (Jul) 16 Oct House prices (Aug, official) ONS 2019Q3 +0.8% (MOM, non-seasonally adjusted), +0.6% (MOM, seasonally adjusted) 17 Oct Retail sales (Sep) ONS 2019Q3 Volume: flat (MOM), 3.1% (YOY) 17 Oct Retail sales (3 months to Sep) ONS 2019Q3 Volume: +0.6% (QOQ), 3.1% (YOY) 22 Oct Public Sector Net Borrowing ONS 2019Q3 £9.2bn (Sep 2019), compared with (PSNB) (Sep) £8.8bn (Sep 2018), corrected data.

17 22 Oct Public Sector Net Borrowing ONS FY2019 £39.0bn deficit (Apr-Sep 2019), (PSNB) (FY2019, year-to-date) compared with £33.2bn deficit (Apr- Sep 2018), corrected data. 22 Oct Public sector finances, public ONS 2019Q3 £1,790.9bn (end-Sep 2019, 80.3% of sector net debt (PSND) (end- GDP), compared with £1,763.6bn Sep) (end-Sep 2018, 81.5% of GDP) 29 Oct Unsecured credit (Sep) BoE 2019Q3 Growth rate (YOY): 6.0% (Sep), 6.1% (Aug) 29 Oct Net mortgage borrowing (Sep) BoE 2019Q3 Growth rate (YOY): 3.2% (Sep), 3.2% (Aug) 29 Oct Mortgage approvals for house BoE 2019Q3 65,900 (Sep), 65,600 (Aug), 65,600 purchase (Sep) (6-month average) 29 Oct Net bank lending to non- BoE 2019Q3 Growth rate (YOY): 3.9% (Sep), 3.3% financial businesses (Sep), of (Aug) which: 29 Oct  SMEs BoE 2019Q3 Growth rate (YOY): 1.0% (Sep), 0.8% (Aug) 29 Oct  Large businesses BoE 2019Q3 Growth rate (YOY): 5.5% (Sep), 4.6% (Aug)

Table 6 Public Sector Net Borrowing (PSNB), FY2018 compared with FY2019 (£bn)

Full year Apr-Sep (recorded) Oct-Mar FY2018 23.6 (ONS), pre-revision 33.2 … FY2019 29.3 (OBR, March 2019) 39.0 …

Change (FY2019- +5.7 (FY2019-FY2018) +5.9, rounded -0.2 (FY2019-FY2018, FY2018) (FY2019-FY2018) implied)

Sources: (i) OBR, Economic and fiscal outlook, March 2019; (ii) ONS, “Public sector finances: September 2019”, 22 October 2019 (corrected 29 October 2019).

Table 7 Brexit: key dates

Date Event 2016 23 June 2016 UK votes on EU referendum, 52% for leave, 48% for remain.

2017 29 March 2017 PM May writes to European Council President Donald Tusk, triggering Article 50 15 December European Council agreed sufficient progress made in phase 1 of withdrawal 2017 negotiations to move on the phase 2 of withdrawal negotiations (Summit: 12-13 December). Phase 1 topics were: EU citizens’ rights, Irish-Northern Irish border & the financial settlement. Recommendation to proceed to phase 2 (the transition period & other aspects of the future UK-EU relationship) 2018 22-23 March European Council meeting (EU Summit). European Council agree terms for

18 2018 transition period. 26 June 2018 European Union (Withdrawal) Act received the Royal Assent 6 July 2018 UK Cabinet agreed preferred model of the future UK-EU relationship (Chequers Agreement) 25 Nov 2018 Extraordinary European Council meeting approves Withdrawal Agreement and Political Declaration. DExEU website, “Withdrawal Agreement and Political Declaration”.

2019 15 January 2019 Government lost “meaningful vote” on the “deal” in the Commons (432/202). 12 March 2019 Government lost “meaningful vote” on the “deal” the Commons for 2nd time (391/242). 21-22 March European Summit, EU27 offered delay: to 22 May if “deal” passes in Commons; 2019 to 12 April if “deal” is not passed in Commons. Defunct. 29 March 2019 Originally planned Brexit Day. Government lost “meaningful vote” on (only) Withdrawal Agreement (344/286). 10 April 2019 Emergency summit of EU leaders, UK and EU27 agree to a further extension of Article 50 negotiations, end date, 31 October 2019. 2 July 2019 New European Parliament sat for first time (European Parliament elections in the UK, on 23 May) 24 July 2019 Boris Johnson became PM (as leader of Conservative party announced on 23 July). 3 September Parliament returned from summer recess (began 25 July). Motion to take 2019 control of Commons’ agenda on 4 September passed (328/301) under Standing Order No 24. 4 September EU (Withdrawal) (No. 6) Bill 2019, passed in Commons, second reading 2019 (329/300), third reading (327/299). The Benn Bill. 9 September Following passing in Lords, European Union (Withdrawal) (No. 6) Bill 2019 given 2019 Royal Assent, as the European Union (Withdrawal) (No. 2) Act 2019. The Benn Act. 17 October UK Government and Commission agreed revised Protocol on Ireland/Northern 2019 Ireland and revised Political Declaration 19 October Letwin amendment (stated that parliamentary support for the deal would be 2019 withheld until legislation implementing the agreement in UK law had been passed), passed in Commons (322/306). The expected vote on the deal was deferred. PM sends Brexit extension request letter to President of the European Council (under EU (Withdrawal) (No. 2) Act 2019). 21 October Government published European Union (Withdrawal Agreement) Bill. 2019 22 October Commons approves the EU (Withdrawal Agreement) Bill, second reading 2019 (329/299). Commons rejects Government’s programme for EU (Withdrawal Agreement) Bill (322/308). 28 October EU27 officially agree to “flextension” to 31 January 2020. PM agrees. 2019 28 October Government loses vote for early election under Fixed Term Parliaments Act 2019 (299/70) 29 October Commons approved Early Parliamentary General Election Bill (438/20). 2019

19 31 October “Brexit Day”, as agreed on 10 April 2019, cancelled 2019 1 November New president of the ECB (Christine Lagarde). 2019

6 November UK Parliament dissolved 2019 1 December New President of the European Council (Charles Michel) 2019 ? New European Commission (President Ursula von der Leyen). Delayed from 1 November 2019 12 December General Election in UK 2019

2020 31 January 2020 Brexit Day, as agreed by EU27, though under “flextension” may be earlier.

20